The Proposal to Eliminate Sales Taxes on Commercial Leases in Florida

There were two bills introduced in the 2014 legislative session to reduce or eliminate sales taxes on rents for commercial properties in Florida. These bills are influenced by Governor Scott’s taxes and fees reduction initiative and by lobbying from business groups such as Florida Realtors and the Florida Retail Federation. Furthermore, Florida is currently the only state in the country that imposes a sales tax on commercial rent directly at the state level.

Today, the state’s tax rate of 6 percent applies to the total amount of the rent collected on commercial space. Additionally, discretionary sales surtaxes of 0.5% to 1.5% are collected for those counties that impose surtaxes. Miami-Dade imposes a 1% discretionary surtax and Broward does not charge a discretionary surtax. The State of Florida receives approximately $700 million in annual revenues from taxes on commercial rents and the counties collect about $55 million.

The bills mentioned above were never given serious consideration in the 2014 legislative session. And with the close of the 2014 session earlier this month, the Florida legislature has declined to allow any tax relief on commercial rents. However, there is support for this type of legislation and similar bills might be introduced in the next legislative session.

The effort to eliminate or even reduce taxes on commercial lease faced headwinds in the past legislative session primarily due to the following issues.

• The Florida legislature cut roughly $500 million in taxes and fees by reducing motor vehicle license renewal registration fees, establishing sales tax holidays, and providing several new tax exemptions and insurance premium tax cuts. Having cut $500 million in revenues, it appears that the Legislature had little appetite for further reductions in revenues.

• A study conducted by the Office of Economic and Demographic Research for the Florida Senate concluded that the economic impact of a sales tax on commercial lease has not adversely affected Florida’s commercial real estate market. Further, by reducing sales taxes on commercial leases there are no clear winners because the economic burden of commercial rental taxes is pushed to tenants who in turn transfer this burden to end customers.

Given that the immediate winners of tax relief on commercial leases are not easy to identify, we need to intensify the lobbying effort to get this tax eliminated. We are the winners, and it will take the full effort of all of us to push for this important change.

If you need additional information on this issue or support in other areas of commercial real estate, please contact me at tbennett@benstonecommercial.com